Biovail execs face charges

Two years ago, the chief executive of a Canadian pharmaceutical company with U.S. headquarters in Bridgewater sat down with a CBS "60 Minutes" correspondent and railed against what he alleged was a conspiracy of short sellers and analysts to destroy his business.

"The damage that was suffered by the company we can attribute di rectly to the reports that came out," Biovail Chief Executive Eu gene Melnyk told "60 Minutes" co- host Leslie Stahl.

But yesterday, the Securities and Exchange Commission alleged in a civil complaint Biovail had it self to blame for the company's problems. Biovail, while not admitting the charges, agreed to pay $10 million to settle with the SEC.

Regulators, who also sued Mel nyk and three other current or former company executives, accused them of deceiving investors, overstating earnings and hiding losses.

"In an effort to conceal the fraud, Biovail's senior officers intentionally misled the company's auditors and the investing public, showing their complete disregard for their responsibilities to sharehold ers," said Mark Schonfeld, director of the SEC's New York office.

Federal prosecutors in Brooklyn are conducting their own investiga tion.

Biovail's current stance differs significantly from 2006, when the company filed a lawsuit in Superior Court in Newark seeking $4.6 billion from SAC Capital Management, one of the country's largest hedge funds, and several analysts. The claim: Analysts issued false reports questioning Biovail's ac counting and raised other concerns to help SAC's short-selling efforts.

Short sellers make money by selling borrowed stock in the hopes they can buy it back at a lower price. Many companies that attract the attention of short sellers have alleged some sort of wrongdoing on the part of those investors.

In 1996, Biovail sued another short seller, Parker Quillen, who runs the Little Wing hedge fund, accusing him of spreading false ru mors to drive down shares. The case ended with Biovail dropping its complaint and investing $7.5 million in Quillen's hedge fund, according to the New York Post.

The SAC lawsuit is "just the latest and maybe biggest, but not the only example of Eugene Melnyk's and Biovail's bullying efforts to quash critical analysis," Quillen said yesterday.

Between 2001 and 2002, Biovail improperly removed $47 million in expenses from its financial statements and concocted a fake transaction to record about $8 million in sales in 2003, the SEC charged in its complaint. Melnyk and other executives also schemed to falsely attribute about half of Biovail's poor quarterly performance to a truck accident in 2003, the complaint al leged.

Melnyk, who did not settle with the SEC, also was named in a similar proceeding by the Ontario Se curities Commission. Melnyk, who resigned as chairman of Biovail last year, called the accusations un founded.

"I intend to vigorously contest the absolutely false allegations of the SEC and OSC and am confi dent that I will prevail once all the facts are heard," he said in a statement.

A spokesman for SAC, the hedge fund being sued by Biovail, declined to comment. Gradient Analytics, a research firm named in the Biovail lawsuit, said the SEC action was a "vindication of the prescient analysis that Gradient published on the Biovail account ing methods."

The lawsuit has been on hold in recent months and it was unclear what effect yesterday's actions will have on the case.

In December, Biovail agreed to pay $138 million to settle a shareholder class-action lawsuit accusing the company of accounting fraud and misleading investors.